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U.S. housing starts made a comeback in March, reaching nearly a 15-year high, after witnessing two months of decline to start 2021. Notably, per a report from the Commerce Department, U.S. housing starts rose 19.4% from February, to a seasonally adjusted rate of 1.739 million units, marking the highest level since June 2006, as quoted in a Reuters article.
Moreover, the article stated that single-family homebuilding, which forms the largest share of the housing market, rose 15.3% in March while single-family building permits rose 4.6%. On a further positive note, the Reuters article stated that a survey from the National Association of Home Builders showed that the confidence among single-family homebuilders increased in April as buyer traffic remained strong.
The housing market was already in a bright spot last year even though the economy was battered by the COVID-19 pandemic. The primary reason behind this surge was that as the pandemic raged on, the stay-at-home trend became prevalent as offices and schools had to be shut to curb the spread of the virus. This led people relocating to more spacious accommodations to better suit their remote working and learning needs. Moreover, 2020 also saw mortgage rates hitting record lows, which in turn, helped in bolstering demand for housing.
Interestingly, wood building products stocks also benefited from the housing market boom last year. This is because along with the soaring demand for housing, as people have stayed at home, they have also looked to renovate their houses or make their working and learning more comfortable. Notably, researchers at Harvard University found that Americans spent nearly $420 billion in home improvement projects last year, as quoted in a CBS Los Angeles article. Notably, with housing starts rebounding in March, wood building products stand to benefit this year as well. Moreover, as mentioned in a CNBC article, per a report by Willis Towers Watson, employers expect nearly two in five employees to still work remotely by the end of 2021, meaning that working from home is set to continue.
Lumber-Related Supply Constraints Expected to Ease
Supply-related constraints plagued the lumber market last year as demand for both housing and renovation remained strong. This, in turn, has pushed lumber prices higher but nonetheless, the situation is expected to improve, leading to a fall in lumber prices by the end of 2021.
Markedly, as cited in a Bloomberg article, analyst Samuel Burman of Capital Economics expects that with COVID-19 restrictions being eased, lumber mill capacity should be bolstered and hiring of more truckers should mitigate the logistics challenges, thereby easing the supply-related constraints. This, in turn, should allow lumber prices to halve to about $600 by year-end even with home-building and renovations keeping demand elevated.
3 Top Wood Building Products Stocks to Buy Now
U.S. housing starts made a comeback in March, nearing a 15-year high. This in turn, should bode well for the wood building products industry as both demand for homebuilding as well as renovation continues to hold up, along with an expected fall in lumber prices as supply constraints are eased. This makes it a good time to invest in wood building product names with strong fundamentals that can make the most of this trend going forward. Notably, we have handpicked three such stocks that carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Boise Cascade Company BCC manufactures wood products and distributes building materials in the United States and Canada. The Zacks Consensus Estimate for its current-year earnings increased 46.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 21.4%.
Louisiana-Pacific Corporation LPX, together with its subsidiaries, manufactures and markets building products primarily for use in new home construction, repair and remodeling, and outdoor structure markets. The Zacks Consensus Estimate for its current-year earnings increased 28.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 68.7%.
UFP Industries, Inc. UFPI, through its subsidiaries, designs, manufactures, and markets wood and wood-alternative products in North America, Europe, Asia, and Australia. The Zacks Consensus Estimate for its current-year earnings increased 55.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 58.5%.
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